IQVIA HOLDINGS INC.
You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes included elsewhere in this Annual Report on Form 10-K.
Some of the information contained in this discussion and analysis or set forth
elsewhere in this Annual Report, including information with respect to our plans
and strategy for our business, includes forward-looking statements that involve
risks and uncertainties. You should read the "Risk Factors" section of this
Annual Report for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the
forward-looking statements contained in the following discussion and analysis.
46
--------------------------------------------------------------------------------Overview
IQVIA is a leading global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry. IQVIA creates intelligent connections across all aspects of healthcare through its analytics, transformative technology, big data resources and extensive domain expertise. IQVIA Connected Intelligence™ delivers powerful insights with speed and agility - enabling customers to accelerate the clinical development and commercialization of innovative medical treatments that improve healthcare outcomes for patients. With approximately 86,000 employees, we conduct operations in more than 100 countries. We are managed through three reportable segments: Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions. Technology & Analytics Solutions provides mission critical information, technology solutions and real world insights and services to our life science clients. Research & Development Solutions, which primarily serves biopharmaceutical clients, provides outsourced clinical research and clinical trial services. Contract Sales & Medical Solutions provides health care provider (including contract sales) and patient engagement services to both biopharmaceutical clients and the broader healthcare market.
For a description of our service offerings within our segments, refer to Part I, Item 1, "Business".
Throughout 2022 we experienced broad, robust demand for all our offerings as demonstrated by our results for the year endedDecember 31, 2022 , and our remaining performance obligations of approximately$29.2 billion as ofDecember 31, 2022 . We produced these results in the face of significant unforeseen challenges presented by the global macro environment including wage inflation and attrition, general inflation, staff shortages affecting investigator sites, along with the slow recovery of patient visits. As a response to these challenges, we have decided to accelerate targeted productivity initiatives so we can mitigate the impact in 2023. Overall, the life sciences industry that we serve is a long-cycle business and is well placed to weather uncertainties. The COVID-19 pandemic continued to impact operations in 2022. While we expanded our decentralized clinical trials capabilities and other more remote and technology-based offerings throughout 2022, due to the progression of the world's overall response to the pandemic and specifically work related to clinical development of COVID-19 vaccines, we experienced a decline in revenues in 2022 from COVID-19 related work. If current trends for the pandemic continue, we expect to see a continued decline in COVID-19 related work in 2023 compared to 2022. As ofDecember 31, 2022 COVID-19 related work did not represent a material amount of our remaining performance obligations. The Company continues to maintain strong liquidity. As ofDecember 31, 2022 , cash and cash equivalents were$1,216 million and the Company had$425 million drawn under its$1.5 billion revolving credit facility. As ofDecember 31, 2022 , the Company was in compliance with the financial covenants under its debt agreements in all material respects and does not have material uncertainty about ongoing ability to meet the covenants of our credit arrangements.
Industry Outlook
For information about the industry outlook and markets that we operate in, refer to Part I, Item I, "Our Market Opportunity".
Business Combinations
We have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas, including various individually immaterial acquisitions during the years endedDecember 31, 2022 and 2021. These transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date. See Note 14 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to these business combinations.
Sources of Revenues
Total revenues are comprised of revenues from the provision of our services. We do not have any material product revenues.
47
--------------------------------------------------------------------------------Costs and Expenses
Our costs and expenses are comprised primarily of our cost of revenues including reimbursed expenses and selling, general and administrative expenses. Cost of revenues includes compensation and benefits for billable employees and personnel involved in production, trial monitoring, data management and delivery, and the costs of acquiring and processing data for our information offerings; costs of staff directly involved with delivering technology-related services offerings and engagements, related accommodations and the costs of data purchased specifically for technology services engagements; and other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses. Reimbursed expenses, which are included in cost of revenues, are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives. Selling, general and administrative expenses include costs related to sales, marketing and administrative functions (including human resources, legal, finance, quality assurance, compliance and general management) for compensation and benefits, travel, professional services, training and expenses for information technology and facilities. We also incur costs and expenses associated with depreciation and amortization.
Foreign Currency Translation
In 2022, approximately 30% of our revenues were denominated in currencies other thanthe United States dollar, which represents approximately 60 currencies. Because a large portion of our revenues and expenses are denominated in foreign currencies and our financial statements are reported inUnited States dollars, changes in foreign currency exchange rates can significantly affect our results of operations. The revenues and expenses of our foreign operations are generally denominated in local currencies and translated intoUnited States dollars for financial reporting purposes. Accordingly, exchange rate fluctuations will affect the translation of foreign results intoUnited States dollars for purposes of reporting our consolidated results. As a result, we believe that reporting results of operations that exclude the effects of foreign currency rate fluctuations on certain financial results can facilitate analysis of period to period comparisons. This constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results. As such, the differences noted below between reported results of operations and constant currency information is wholly attributable to the effects of foreign currency rate fluctuations.
Consolidated Results of Operations
For information regarding our results of operations for our Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions segments, refer to "Segment Results of Operations" later in this section.
For a discussion of our results of operations comparison for 2021 and 2020,
refer to our Annual Report on Form 10-K for the fiscal year ended
Revenues
Change
Year Ended December 31, 2022 vs. 2021 2021 vs. 2020(dollars in millions) 2022 2021 2020 $ % $ % Revenues$ 14,410 $ 13,874 $ 11,359 $ 536 3.9 %$ 2,515 22.1 % 2022 compared to 2021
In 2022, our revenues increased
48
--------------------------------------------------------------------------------Cost of Revenues, exclusive of Depreciation and Amortization
Year Ended December 31,
(dollars in millions) 2022 2021 2020
Cost of revenues, exclusive of depreciation and
amortization $ 9,382 $ 9,233 $ 7,500
% of revenues 65.1 % 66.5 % 66.0 %
2022 compared to 2021
When compared to 2021, cost of revenues, exclusive of depreciation and amortization increased$149 million in 2022, or 1.6%. This increase included a constant currency increase of approximately$674 million , or 7.3%, comprised of a$228 million increase in Technology & Analytics Solutions, a$408 million increase in Research & Development Solutions, and a$38 million increase in Contract Sales & Medical Solutions.
As a percent of revenues, cost of revenues, exclusive of depreciation and amortization in 2022 decreased compared to 2021.
Selling, General and Administrative Expenses
Year Ended
(dollars in millions) 2022 2021 2020
Selling, general and administrative expenses $ 2,071 $ 1,964 $ 1,789
% of revenues 14.4 % 14.2 % 15.7 %
2022 compared to 2021
The $107 million increase in selling, general and administrative expenses in
2022 as compared to 2021 included a constant currency increase of approximately
$211 million , or 10.7%, comprised of a $107 million increase in Technology &
Analytics Solutions, a $81 million increase in Research & Development Solutions,
a $8 million increase in Contract Sales & Medical Solutions, and a $15 million
increase in general corporate and unallocated expenses.
Depreciation and Amortization
Year Ended December 31,
(dollars in millions) 2022 2021 2020
Depreciation and amortization $ 1,130 $ 1,264 $ 1,287
% of revenues 7.8 % 9.1 % 11.3 %
The $134 million decrease in depreciation and amortization in 2022 as compared
to 2021 was primarily due to certain intangible assets from the merger between
Quintiles and IMS Health becoming fully amortized in 2021, offset by higher
intangible asset balances as a result of acquisitions occurring in 2021 and
2022, increased amortization due to higher capitalized software balances and
accelerated amortization related to the abandonment of certain internally
developed software assets.
Restructuring Costs
Year Ended December 31,
(in millions) 2022 2021 2020
Restructuring costs $ 28 $ 20 $ 52
The restructuring costs incurred were due to ongoing efforts to streamline our
global operations and reduce overcapacity to adapt to changing market conditions
and integrate acquisitions. The remaining actions under these plans are expected
to occur throughout 2023 and are expected to consist of consolidating functional
activities, eliminating redundant positions, and aligning resources with
customer requirements.
49
--------------------------------------------------------------------------------Interest Income and Interest Expense
Year Ended December 31,
(in millions) 2022 2021 2020
Interest income $ (13) $ (6) $ (6)
Interest expense $ 416 $ 375 $ 416 Interest income included interest received primarily from bank balances and investments. The increase is primarily a result of higher deposit rates.
Interest expense during 2022 was higher than 2021 due primarily to higher base rate interest costs across the floating rate debt portfolio as well as from an increase in our net debt.
Loss on Extinguishment of Debt
Year Ended December 31,
(in millions) 2022 2021 2020
Loss on extinguishment of debt $ - $ 26 $ 13
During 2021, we recognized a loss on extinguishment of debt of $26 million for
fees and expenses incurred related to the refinancing of our 3.250% Senior Notes
due 2025 and Prior Credit Agreement as discussed further in Note 10 to our
audited consolidated financial statements included elsewhere in this Annual
Report on Form 10-K.
Other expense (income), net
Year Ended December 31,
(in millions) 2022 2021 2020
Other expense (income), net $ 33 $ (130) $ (65) Other expense (income), net for 2022 increased compared to 2021 primarily due to foreign currency losses and losses on investments.
Income Tax Expense
Year Ended December 31,
(dollars in millions) 2022 2021 2020
Income tax expense $ 260 $ 163 $ 72
Effective income tax rate 19.1 % 14.5 % 19.3 %
In 2022, we recorded a benefit of $6 million related to a 2021 U.S. Federal tax
return position associated with Foreign Derived Intangible Income ("FDII") and
Global Intangible Low-Taxed Income ("GILTI") tax credits. In addition, our
effective tax rate was impacted by changes in the geographical mix of earnings
amongst foreign tax jurisdictions as well as state and local tax rates.
In 2021, we recorded a benefit of $29 million related to a 2020 U.S. Federal tax
return position associated with FDII and GILTI tax credits. Also in 2021, we
recorded a $9 million tax expense as a result of the U.S. Treasury Department
issuing final regulations on foreign tax credits.
Equity in (Losses) Earnings of Unconsolidated Affiliates
Year Ended December 31,
(in millions) 2022 2021 2020
Equity in (losses) earnings of unconsolidated
affiliates $ (12) $ 6 $ 7 Equity in (losses) earnings of unconsolidated affiliates decreased in 2022 compared to 2021 due to the losses in the operations of our unconsolidated affiliates.
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--------------------------------------------------------------------------------Net Income Attributable to Non-controlling Interests
Year Ended December 31,
(in millions) 2022 2021 2020
Net income attributable to non-controlling interests $ -
Net income attributable to non-controlling interests included Quest Diagnostics
Incorporated's ("Quest") interest in Q2 Solutions. On April 1, 2021 the Company
acquired the 40% non-controlling interest in Q2 Solutions from Quest which
resulted in a decrease in the net income attributable to non-controlling
interests in 2022 compared to 2021. See Note 13 to our audited consolidated
financial statements included elsewhere in this Annual Report on Form 10-K for
additional details regarding this transaction.
Segment Results of Operations
Revenues and profit by segment are as follows:
Segment Revenues Segment Profit
(in millions) 2022 2021 2020 2022 2021 2020
Technology & Analytics Solutions $ 5,746 $ 5,534 $ 4,858 $ 1,550 $ 1,458 $ 1,216
Research & Development Solutions 7,921 7,556 5,760 1,695 1,476 1,048
Contract Sales & Medical Solutions 743 784 741 42 75 57
Total 14,410 13,874 11,359 3,287 3,009 2,321
General corporate and unallocated (330) (332) (251)
Depreciation and amortization (1,130) (1,264) (1,287)
Restructuring costs (28) (20) (52)
Consolidated $ 14,410 $ 13,874 $ 11,359 $ 1,799 $ 1,393 $ 731
Certain costs are not allocated to our segments and are reported as general
corporate and unallocated expenses. These costs primarily consist of stock-based
compensation and expenses related to integration activities and acquisitions. We
also do not allocate depreciation and amortization or impairment charges to our
segments.
Technology & Analytics Solutions
Year Ended December 31, Change
(dollars in millions) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Revenues $ 5,746 $ 5,534 $ 4,858 $ 212 3.8% $ 676 13.9%
Cost of revenues, exclusive of depreciation and amortization 3,348 3,278 2,900 70 2.1 378 13.0 Selling, general and administrative expenses 848 798 742 50 6.3 56 7.5 Segment profit$ 1,550 $ 1,458 $ 1,216 $ 92 6.3%$ 242 19.9% Revenues 2022 compared to 2021 Technology & Analytics Solutions' revenues were$5,746 million in 2022, an increase of$212 million , or 3.8%, over 2021. This increase was comprised of constant currency revenue growth of approximately$483 million , or 8.7%, reflecting revenue growth across all regions. The constant currency revenue growth was primarily driven by an increase in real world services, and to a lesser extent by increases in consulting and analytical services and information and technology services. 51 --------------------------------------------------------------------------------
Cost of Revenues, exclusive of Depreciation and Amortization
2022 compared to 2021
Technology & Analytics Solutions' cost of revenues, exclusive of depreciation and amortization, was$3,348 million in 2022, an increase of$70 million over 2021. This increase was comprised of constant currency increase of approximately$228 million , or 7.0%, reflecting an increase in compensation and related expenses to support revenue growth.
Selling, General and Administrative Expenses
2022 compared to 2021
Technology & Analytics Solutions' selling, general and administrative expenses increased$50 million in 2022 as compared to 2021. This increase was comprised of a constant currency increase of approximately$107 million , or 13.4%, reflecting an increase in compensation and related expenses.
Research & Development Solutions
Year Ended December 31, Change
(dollars in millions) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Revenues $ 7,921 $ 7,556 $ 5,760 $ 365 4.8% $ 1,796 31.2%
Cost of revenues, exclusive of depreciation and amortization 5,395 5,303 3,974 92 1.7 1,329 33.4 Selling, general and administrative expenses 831 777 738 54 6.9 39 5.3 Segment profit$ 1,695 $ 1,476 $ 1,048 $ 219 14.8%$ 428 40.8% Backlog Research & Development Solutions' contracted backlog increased from$24.8 billion as ofDecember 31, 2021 to$27.2 billion as ofDecember 31, 2022 and we expect approximately$7.3 billion of this backlog to convert to revenues in the next 12 months. Contracted backlog was$22.6 billion as ofDecember 31, 2020 .
Backlog represents, at a particular point in time, future revenues from work not yet completed or performed under signed contracts. Once work begins on a project, revenues are recognized over the duration of the project.
We believe that backlog is an indicator of future revenues but the timing of revenues will be affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, cancellations, and changes to the scope of work during the course of projects. Projects that have been delayed remain in backlog, but the timing of the revenues generated may differ from the timing originally expected. Additionally, projects may be terminated or delayed by the customer or delayed by regulatory authorities. In the event that a client cancels a contract, we typically would be entitled to receive payment for all services performed up to the cancellation date and subsequent client-authorized services related to winding down the canceled project. For more details regarding risks related to our backlog, see Part I, Item IA, "Risk Factors-Risks Related to our Business-The relationship of backlog to revenues varies over time."
Revenues
2022 compared to 2021
Research & Development Solutions' revenues were$7,921 million in 2022, an increase of$365 million , or 4.8%, over 2021. This increase was comprised of constant currency revenue growth of approximately$580 million , or 7.7%, reflecting revenue growth in theEurope andAfrica andAsia-Pacific regions, partially offset by a decrease in COVID-19 related work in theAmericas region. The constant currency revenue growth was primarily the result of volume-related increases in clinical services and to a lesser extent from volume-related increases in lab testing. 52 --------------------------------------------------------------------------------
Cost of Revenues, exclusive of Depreciation and Amortization
2022 compared to 2021
Research & Development Solutions' cost of revenues, exclusive of depreciation and amortization, increased$92 million , or 1.7%, in 2022 as compared to 2021. This increase included a constant currency increase of approximately$408 million , or 7.7%, reflecting an increase in compensation and related expenses as a result of volume-related increases in clinical services and lab testing.
Selling, General and Administrative Expenses
2022 compared to 2021
Research & Development Solutions' selling, general and administrative expenses increased$54 million , or 6.9%, in 2022 as compared to 2021, which included a constant currency increase of approximately$81 million , or 10.4%, reflecting an increase in compensation and related expenses.
Contract Sales & Medical Solutions
Year Ended December 31, Change
(dollars in millions) 2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Revenues $ 743 $ 784 $ 741 $ (41) (5.2)% $ 43 5.8%
Cost of revenues, exclusive of depreciation and amortization 639 652 626 (13) (2.0) 26 4.2 Selling, general and administrative expenses 62 57 58 5 8.8 (1) (1.7) Segment profit$ 42 $ 75 $ 57 $ (33) (44.0)% $ 18 31.6% Revenues 2022 compared to 2021 Contract Sales & Medical Solutions' revenues were$743 million in 2022, a decrease of$41 million , or 5.2%, over 2021. This decrease included constant currency revenue growth of approximately$21 million , or 2.7%, reflecting revenue growth primarily in theEurope andAfrica region. The constant currency revenue growth was largely due to a volume-related increase in services performed.
Cost of Revenues, exclusive of Depreciation and Amortization
2022 compared to 2021
Contract Sales & Medical Solutions' cost of revenues, exclusive of depreciation and amortization, decreased$13 million , or 2.0%, in 2022 as compared to 2021. This decrease included a constant currency increase of approximately$38 million , or 5.8%, reflecting an increase in compensation and related expenses and reimbursed expenses.
Selling, General and Administrative Expenses
2022 compared to 2021
Contract Sales & Medical Solutions' selling, general and administrative expenses increased$5 million , or 8.8%, in 2022 as compared to 2021. This increase included a constant currency increase of approximately$8 million , or 14.0%, reflecting an increase in compensation and related expenses and IT-related expenses. 53 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Overview
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, acquisitions, investments, debt service requirements, equity repurchases, adequacy of our revolving credit and receivables financing facilities, and access to the capital markets. We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which those funds can be accessed on a cost-effective basis. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations. We have and expect to transfer cash from those subsidiaries tothe United States and to other international subsidiaries when it is cost effective to do so.
We had a cash balance of
Based on our current operating plan, we believe that our available cash and cash equivalents, future cash flows from operations and our ability to access funds under our revolving credit and receivables financing facilities will enable us to fund our operating requirements, capital expenditures, contractual obligations, and meet debt obligations for at least the next 12 months. We regularly evaluate our debt arrangements, as well as market conditions, and from time to time we may explore opportunities to modify our existing debt arrangements or pursue additional financing arrangements that could result in the issuance of new debt securities by us or our affiliates. We may use our existing cash, cash generated from operations or dispositions of assets or businesses and/or proceeds from any new financing arrangements or issuances of debt or equity securities to repay or reduce some of our outstanding obligations, to repurchase shares from our stockholders or for other purposes. As part of our ongoing business strategy, we also continually evaluate new acquisition, expansion and investment possibilities or other strategic growth opportunities, as well as potential dispositions of assets or businesses, as appropriate, including dispositions that may cause us to recognize a loss on certain assets. Should we elect to pursue any such transaction, we may seek to obtain debt or equity financing to facilitate those activities. Our ability to enter into any such potential transactions and our use of cash or proceeds is limited to varying degrees by the terms and restrictions contained in our existing debt arrangements. We cannot provide assurances that we will be able to complete any such financing arrangements or other transactions on favorable terms or at all.
Equity Repurchase Program
OnFebruary 10, 2022 the Board increased the stock repurchase authorization under the Company's equity repurchase program (the "Repurchase Program") with respect to the repurchase of the Company's common stock by an additional$2.0 billion , which increased the total amount that has been authorized under the Repurchase Program to$9.725 billion since the program's inception inOctober 2013 . The Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it may be modified, extended, suspended or discontinued at any time. As ofDecember 31, 2022 , the Company had remaining authorization to repurchase up to approximately$1.36 billion of its common stock under the Repurchase Program. In addition, from time to time, the Company has repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program. Additional information regarding the Repurchase Program is presented in Part II, Item 5 "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities " and Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Debt
As ofDecember 31, 2022 , we had$12.8 billion of total indebtedness, excluding$1.1 billion of additional available borrowings under our revolving credit facility. See Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details regarding our credit arrangements. 54 --------------------------------------------------------------------------------
Our long-term debt arrangements contain customary restrictive covenants and, as
of
Senior Secured Credit Facilities
OnJune 16, 2022 , the Company entered into Amendment No. 1 to the Company's Fifth Amended and Restated Credit Agreement (as amended, the "Fifth Amended and Restated Credit Agreement") to borrow$1,250 million in Additional Term A Loans. The proceeds from the Additional Term A Loans were used to repay approximately$950 million of outstanding revolving credit loans under the Company's senior secured credit facilities and for general corporate purposes.
On
As ofDecember 31, 2022 , the Fifth Amended and Restated Credit Agreement provided financing through several senior secured credit facilities (collectively, the "senior secured credit facilities") of up to approximately$7,637 million , which consisted of$6,562 million principal amounts of debt outstanding and$1,070 million of available borrowing capacity on the revolving credit facility and standby letters of credit, with a total capacity of$1,500 million . The revolving credit facility is comprised of a$675 million senior secured revolving facility available inU.S. dollars, a$600 million senior secured revolving facility available inU.S. dollars, Euros, Swiss Francs and other foreign currencies, and a$225 million senior secured revolving facility available inU.S. dollars and Yen. The term A loans and revolving credit facility under the Fifth Amended and Restated Credit Agreement mature inAugust 2026 , the Additional Term A Loans matureJune 2027 , while the term B loans under the Fifth Amended and Restated Credit Agreement mature in 2024 and 2025. We are required to make scheduled quarterly payments on the term A loans and the Additional Term A Loans equal to 1.25% of the original principal amount, with the remaining balance paid at maturity. In addition, beginning with fiscal year endingDecember 31, 2017 , we were required to apply 50% of excess cash flow (as defined in the Fifth Amended and Restated Credit Agreement), subject to a reduction to 25% or 0% depending upon our senior secured first lien net leverage ratio, for prepayment of the term loans, with any such prepayment to be applied toward principal payments due in subsequent quarters. We are also required to pay an annual commitment fee that ranges from 0.20% to 0.35% in respect of any unused commitments under the revolving credit facility. The senior secured credit facilities are collateralized by substantially all of our assets and the assets of our material domestic subsidiaries including 100% of the equity interests of substantially all of our material domestic subsidiaries and 66% of the equity interests of substantially all of our first-tier material foreign subsidiaries and their domestic subsidiaries. For information regarding the senior secured credit facilities, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Receivables Financing Facility
For information regarding the receivables financing facility, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. As ofDecember 31, 2022 , no additional amounts of revolving loan commitments were available under the receivables financing facility.
Years ended
Cash Flow from Operating Activities
Year Ended December 31,
(in millions) 2022 2021
2020
Net cash provided by operating activities
55
--------------------------------------------------------------------------------2022 compared to 2021
Cash provided by operating activities decreased$682 million in 2022 as compared to 2021. The decrease is primarily due to a decrease in cash from unearned income ($560 million ) and accounts receivable and unbilled services ($283 million ) and an increase in cash used for income tax and other payables ($126 million ), offset by a decrease in cash for accounts payable and accrued expenses ($183 million ), an increase in cash-related net income ($82 million ) and less cash used for prepaid expenses and other assets ($22 million ).
Cash Flow from Investing Activities
Year Ended
(in millions) 2022 2021 2020
Net cash used in investing activities
2022 compared to 2021 Cash used in investing activities decreased$97 million in 2022 as compared to 2021. The decrease was primarily driven by less cash used for the acquisition of businesses, net of cash acquired ($143 million ), a decrease in purchase of marketable securities ($5 million ) and an increase in cash from other sources ($3 million ), offset by an increase in acquisitions of property, equipment, and software ($34 million ), an increase in investments in unconsolidated affiliates ($15 million ) and a decrease in net proceeds from the sale of equity securities ($5 million ).
Cash Flow from Financing Activities
Year Ended December 31,
(in millions) 2022 2021
2020
Net cash used in financing activities
2022 compared to 2021 Cash used in financing activities decreased$906 million in 2022 as compared to 2021, primarily due to a decrease in debt payments ($1,457 million ), the absence of cash payments for the Company's acquisition of Quest's non-controlling interest in Q2 Solutions ($758 million ), a decrease in cash used in repayments of revolving credit facilities, net of proceeds ($115 million ), a decrease in cash payments on contingent consideration and deferred purchase price accruals ($16 million ), offset by an increase in cash used to repurchase common stock ($762 million ), a decrease in cash provided by proceeds from debt issuances, net of payment of debt issuance costs ($666 million ) and an increase in cash payments related to employee stock option plans ($12 million ).
Contingencies
We are exposed to certain known contingencies that are material to our
investors. The facts and circumstances surrounding these contingencies and a
discussion of their effect on us are included in Note 12 to our audited
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K. These contingencies may have a material effect on our liquidity,
capital resources or results of operations. In addition, even where our accruals
are adequate, the incurrence of any of these liabilities may have a material
effect on our liquidity and the amount of cash available to us for other
purposes.
We believe that we have made appropriate arrangements in respect of the future
effect on us of these known contingencies. We also believe that the amount of
cash available to us from our operations, together with cash from financing,
will be sufficient for us to pay any known contingencies as they become due
without materially affecting our ability to conduct our operations and invest in
the growth of our business.
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--------------------------------------------------------------------------------Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
Contractual Obligations and Commitments
Below is a summary of our future payment commitments by year under contractual
obligations as of
(in millions) 2023 2024-2025 2026-2027 Thereafter Total
Long-term debt, including interest (1)
$ 6,026 $ 2,596 $ 14,859 Operating leases 123 173 66 38 400 Finance leases 11 25 26 295 357 Data acquisition 609 518 204 6 1,337 Purchase obligations (2) 79 24 9 11 123 Commitments to unconsolidated affiliates (3) - - - - - Benefit obligations (4) 32 28 31 81 172 Uncertain income tax positions (5) 22 20 15 - 57 Total$ 1,599 $ 6,302 $ 6,377 $ 3,027 $ 17,305 (1) Interest payments on our debt are based on the interest rates in effect as ofDecember 31, 2022 . (2) Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions. (3) We are currently committed to invest$249 million in private equity funds. As ofDecember 31, 2022 , we have funded approximately$119 million of these commitments and we have approximately$130 million remaining to be funded which has not been included in the above table as we are unable to predict when these commitments will be paid. (4) Amounts represent expected future benefit payments for our pension and postretirement benefit plans, as well as expected contributions for 2023 for our funded pension benefit plans. We made cash contributions totaling approximately$35 million to our defined benefit plans in 2022, and we estimate that we will make contributions totaling approximately$32 million to our defined benefit plans in 2023. Due to the potential impact of future plan investment performance, changes in interest rates, changes in other economic and demographic assumptions and changes in legislation in foreign jurisdictions, we are not able to reasonably estimate the timing and amount of contributions that may be required to fund our defined benefit plans for periods beyond 2023. (5) As ofDecember 31, 2022 , our liability related to uncertain income tax positions was approximately$136 million ,$79 million of which has not been included in the above table as we are unable to predict when these liabilities will be paid due to the uncertainties in the timing of the settlement of the income tax positions.
Application of Critical Accounting Policies and Estimates
Note 1 to the audited consolidated financial statements provided elsewhere in this Annual Report on Form 10-K describes the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from those estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
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--------------------------------------------------------------------------------Revenue Recognition
The majority of the Company's contracts within the Research & Development Solutions segment are service contracts for clinical research that represent a single performance obligation. The Company provides a significant integration service resulting in a combined output, which is clinical trial data that meets the relevant regulatory standards and can be used by the customer to progress to the next phase of a clinical trial or solicit approval of a treatment by the applicable regulatory body. The performance obligation is satisfied over time as the output is captured in data and documentation that is available for the customer to consume over the course of the arrangement and furthers progress of the clinical trial. The Company recognizes revenues over time using a cost-based input method since there is no single output measure that would fairly depict the transfer of control over the life of the performance obligation. Progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract. Costs included in the measure of progress include direct labor and third-party costs (such as payments to investigators and other reimbursed expenses for the Company's clinical monitors). This cost-based method of revenue recognition requires the Company to make estimates of costs to complete its projects on an ongoing basis. Significant judgment is required to evaluate assumptions related to these estimates. The effect of revisions to estimates related to the transaction price or costs to complete a project are recorded in the period in which the estimate is revised. Most contracts may be terminated upon 30 to 90 days' notice by the customer; however, in the event of termination, most contracts require payment for services rendered through the date of termination, as well as for subsequent services rendered to close out the contract. A hypothetical increase of one percent in the estimated costs to complete these service contracts as ofDecember 31, 2022 could have resulted in approximately a one percent reduction in total revenues for the year endedDecember 31, 2022 , whereas, a hypothetical decrease of one percent could have resulted in a one percent increase in total revenues. Income Taxes The provision for income taxes includes federal, state, local and foreign taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences of temporary differences between the financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which the temporary differences are expected to be recovered or settled. We recordU.S. deferred taxes based on the Federal corporate income tax rate of 21%, We account for tax related to GILTI as a period cost when incurred. Recognition of deferred income tax assets is based on management's belief that it is more likely than not that the income tax benefit associated with certain temporary differences, income tax operating loss, capital loss carryforwards, and income tax credits, will be realized. We recorded a valuation allowance to reduce our deferred income tax assets for those deferred income tax items for which it was more likely than not that realization would not occur. We determined the amount of the valuation allowance based, in part, on our assessment of future taxable income and in light of our ongoing income tax strategies. If our estimate of future taxable income or tax strategies changes at any time in the future, we would record an adjustment to our valuation allowance. Recording such an adjustment could have a material effect on our financial condition or results of operations. Income tax expense is based on the distribution of profit before income tax among the various taxing jurisdictions in which we operate, adjusted as required by the income tax laws of each taxing jurisdiction. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate. We do not consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside ofthe United States .
Business Combinations and
We use the acquisition method to account for business combinations, and accordingly, the identifiable assets acquired, the liabilities assumed and any non-controlling interests in the acquiree are recorded at their estimated fair values on the date of the acquisition. We use significant judgments, estimates and assumptions in determining the estimated fair value of assets acquired, liabilities assumed and non-controlling interests including expected future cash flows and discount rates that reflect the risk associated with the expected future cash flows and estimated useful lives. We have recorded and allocated to our reporting units the excess of the purchase price over the fair value of the net assets acquired, known as goodwill. The recoverability of goodwill is evaluated annually for impairment, or if and when events or circumstances indicate a possible impairment. We perform our annual goodwill impairment evaluation as ofJuly 31 . The impairment analysis requires significant judgments, estimates and assumptions, including those related to macroeconomic conditions, industry and market considerations, cost factors, financial performance, fair value history and other company specific events. For the years endedDecember 31, 2022 , 2021 and 2020, the Company determined that there was no impairment of goodwill. 58 -------------------------------------------------------------------------------- We review the carrying values of other identifiable intangible assets if the facts and circumstances indicate a possible impairment. Any future impairment could have a material adverse effect on our financial condition or results of operations. Stock-based Compensation We measure compensation cost for stock-based payment awards (stock options and stock appreciation rights) granted to employees and non-employee directors at fair value using the Black-Scholes-Merton option-pricing model. Stock-based compensation expense includes stock-based awards granted to employees and non-employee directors and has been reported in selling, general and administrative expenses in our consolidated statements of income based upon the classification of the individuals who were granted stock-based awards. The Black-Scholes-Merton option-pricing model requires the use of subjective assumptions, including share price volatility, the expected life of the award, risk-free interest rate and the fair value of the underlying common shares on the date of grant. In developing our assumptions, we take into account the following: •We calculate expected volatility based on an analysis of the historical volatility of the Company's stock since the Merger inOctober 2016 and reported data for selected reasonably similar publicly traded companies for which the historical information is available. We plan to continue to use an analysis that incorporates the selected reasonably similar publicly traded companies volatility information and the historical volatility of our common shares to measure expected volatility for future award grants;
•We determine the risk-free interest rate by reference to implied yields available from United States Treasury securities with a remaining term equal to the expected life assumed at the date of grant;
•We estimate the dividend yield to be zero as we do not currently anticipate paying any future dividends;
•We estimate the average expected life of the award based on our historical experience; and
•We estimate forfeitures based on our historical analysis of actual forfeitures.
The Company accounts for its stock-based compensation for performance awards
related to compound annual earnings per share ("EPS") growth over a three year
period based on the closing market price of the Company's common stock on the
date of grant, and for performance awards related to relative total shareholder
return ("TSR") based on a Monte Carlo simulation model. The Company records the
expense amount of the EPS awards based on its estimates of the likelihood that
the various performance targets will be achieved. The estimates are assessed on
a quarterly basis. For the TSR awards the Company records the expense amount
evenly over the service period.
Pensions and Other Postretirement Benefits
We provide retirement benefits to certain employees, including defined benefit pension plans and postretirement medical plans. The determination of benefit obligations and expense is based on actuarial models. In order to measure benefit costs and obligations using these models, critical assumptions are made with regard to the discount rate, expected return on plan assets, cash balance crediting rate, lump sum conversion rate and the assumed rate of compensation increases. In addition, retiree medical care cost trend rates are a key assumption used exclusively in determining costs for our postretirement health care and life insurance benefit plans.
Recently Issued Accounting Standards
Information relating to recently issued accounting standards is included in Note
1 to our audited consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.
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